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15

February

2015

Where is the property market headed

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There are many overseas sceptics predicting the crash and burn of the Australian property markets. In fact, they have been doing so for many years since the GFC. Our property markets continue to survive the naysayers who believe our property prices are too high and there must be a fall.

In fact our property prices are some of the highest in the world, so why then do they continue to grow albeit slowly at the moment.

Throughout the history of the Australian property market, there has been growth, price adjustments, and stagnation. To understand why our market continues to hold firm, one must look at some basic fundamentals of the insular nature of our domestic housing market.

Firstly, as a nation we are one of the richest in the world per capita which would suggest that we can afford higher prices. Our houses are also mostly bigger and better than most other developed nations as anyone can testify who has travelled around the world. Our cities are also generally larger than most developed countries and more spacious and well laid out. The fact that over 60% of our population live in one of our major cities makes us one of the most urbanized countries in the world. We sit only behind a few other nations in this regard.

This in turn, encourages people to remain in the cities with all the conveniences that this brings, driving up prices as they seek less travel time to their workplaces. The tax incentives that our government offer are another reason that property prices remain an attractive investment for the investor. Ultimately, the supply and demand of housing will have a major effect on holding property prices stable. Many of our cities are limited with growth opportunities for new developments as well as governments acutely aware that an oversupply of residential accommodation can be detrimental to their local markets.

Lastly, our interest rates are also some of the highest in the western world. The fact that there is still room for interest rates to fall, would also suggest that affordability of housing will be better if rates fall. As we are all aware, the RBA recently cut rates and are likely to do so again in the coming months.

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